Double Nelp gas price to $8, says Rangarajan

SummaryCome March 2014, Reliance Industries and public sector ONGC and OIL will be able to sell their domestically-produced natural gas at the average global price at which India imports the
fuel, excluding certain incidental costs, if the government accepts the recommendation of a panel led by Prime Ministerís Economic Advisory Councilís chairman C Rangarajan.

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Come March 2014, Reliance Industries and public sector ONGC and OIL will be able to sell their domestically-produced natural gas at the average global price at which India imports the fuel, excluding certain incidental costs, if the government accepts the recommendation of a panel led by Prime Ministerís Economic Advisory Councilís chairman C Rangarajan.

This means a jump in the price of a substantial amount of gas produced in the country from $4.2 per million British thermal unit (mmBtu) now to slightly under $8. About 37% of the 114 million cubic metres of the commodity produced in 2011 was from blocks licensed under the new exploration and licensing policy (Nelp), the pricing of which the panel reviewed. India imports more gas than what it produces at two-three times the regulated local price. Companies are still not satisfied with the pricing formula suggested by the panel as transportation and liquefaction costs of imported gas that are proposed to be excluded from the domestic gas price account for roughly $4 per mmBtu.

The panel did not mention any specific price, but when asked what could be the price based on the formula suggested by the panel, Rangarajan said that it could be slightly below $8.

The committee, which gave its suggestions to Manmohan Singh recently, said such a global average price may be interpreted as an ďarmís length competitive priceĒ that producers like RIL may charge.Gas is sold at armís length price based on a government-approved formula to industrial customers selected from a list of priority customers in fertilisers, power, city gas distribution, steel and petrochemical industries.

Rangarajanís report that comes prior to a price revision due in March 2014 suggests that the pricing regime should be revised again five years from hence.

The proposed policy reflects the average price of gas realised by countries exporting gas to India (excluding certain costs) and the prices quoted at major markets of North America, Europe, Eurasia and Japan that account for three-fourths of the 3.2 trillion cubic metres of gas traded in the world. The result is expected to balance the high price prevailing in Asia and the low price in US.

Industry sources said gas producers like Reliance are not happy with the proposal as it apparently does not reflect risks involved in exploration. Producers have been asking for market-linked pricing and the suggested exclusion of transportation and liquefaction costs from